Insights from the Baltics
Oliwia and Joanna just came back from 2nd BEC. Does it matter who is paying the taxes? How persistent is tax evasion? What is the impact of globalization on a firm to firm trade? Are poor and rich paying the same price for the same good? These and lots of more interesting talks happened.
We showed the newest version of our study concerning the impact of taxation on the efficiency of the pension system reform.
Taxing capital or capital income is inefficient in a standard representative agent model. However, when choosing which tax to raise, an important concern is related to the elasticity of response to taxation. A growing body of the literature demonstrates that inter-temporal elasticity of substitution is quantitatively relevant for the magnitude of capital adjustment in response to capital taxation, hence affecting the size of the efficiency loss . For example, if agents have to save, optimal capital income tax is actually positive, as is the case in setups with idiosyncratic income shocks. With longer life expectancy, rational agents generally raise savings, which makes capital potentially an interesting candidate for taxation when longevity increases. In this paper, we study taxation of capital in the contexts of pension systems balance and reforms with particular attention devoted to the role of longevity.